Wave analysis and outlook for major currency pairs

Wave analysis is the new trend in technical analysis. Well, it’s not new but the spin off version from the original Elliott wave theory has received much credibility in the recent past. Specially among the Tradingview community. Tradingview might not represent the complete demography of traders. But I believe it does have a large user base of new retail traders. So any effective system, strategy or method that forecasts price more accurately, is likely to get more attention. Nonetheless, wave analysis is a neat method to objectively look into the future of any index.

EURUSD wave analysis

This was the forecast from last week. However the last component which looks like a triangle in the 4 hour chart warrants an alternate count. The alternate count given below changes the labeling only by a fraction. The price could still break towards either side.

Note that the expectation of this alternate count is for a bullish breakout. Meaning the overall structure could be an ABC ZigZag instead of the bigger triangle defined by the red trendlines.

GBPUSD wave analysis

Finally the cable broke out of the 4th wave correction that we have been following for weeks. Perhaps it did not complete a “prolonged corrective pattern” we were anticipating – a bigger ZigZag or a triangle. At the end it concluded to be an ABC flat correction. None the less, I’m glad that its done and dusted.

I could not care less, what really caused the sharp decline. Be it algorithms and a flash crash, the wave 5 had to happen one way or the other. This is where, wave analysis demonstrates its inherent strength compared to fundamental analysis. Don’t mistake me for I am not against fundamental traders. But no analysis could have predicted an impulsive bearish move except for wave analysis.

As per the count, we have to anticipate a wave-5 (blue) to complete the overall bearish trend (green.) However, given the unprecedented impulsive nature of the wave-3 (blue) and the long-tail wick that marks the current lowest-low, wave-5 (blue) could end up as a truncation. Meaning, that the higher degree bearish impulse (green) may conclude without price ever breaching the current lowest-low.

Nevertheless, price is literally approaching the end of a long term bearish trend. It’s not what I think or like. MACD divergence combined with wave analysis seem to forecast the same.

USDJPY wave analysis

All yen pairs were due for a long term bullish wave. This expectation was discussed in detail here. USDJPY in particular seems to have found the low. But guesswork is not good enough to engage in trading. Last couple of months though has produced a horizontal range. Although this range looks quite small in the weekly chart, it is actually more than 500 pips.

Obviously the weekly chart does not provide the right risk profile for short term retail traders (in this context short term includes swing trading as well.) But one advantage of analyzing the weekly chart is that it can help to spot trades in the right direction in a shorter timeframe, right from the very beginning of a larger trend.

AUDUSD wave analysis

AUDUSD continues to be in the down trend. Contrary to the average AUDUSD traders’ anticipation, I still believe there is more downside for months to come. After all, price has to complete the wave-5 possibly with a MACD divergence. It is a bit too early to discuss the nature of the bullish wave to follow. Its best to keep both options open and anticipate either an impulse or a correction as the following bullish wave. However the nature of this bullish wave would be the decisive factor within the monthly structure with regards to both the pattern and direction.

USDCAD wave analysis

USDCAD is a bit tricky. Meaning, which seems like a bullish corrective structure could actually turn out to be an ending diagonal. One might argue that ending diagonal as wave-1 is a rare occurrence. But it is also very much a possibility. However, for now the anticipation is for the impulsive bearish wave-C. Also note that there is also more room for the seemingly corrective bullish wave before the big reversal happens.

USDCHF wave analysis

USDCHF structure is very complex that includes a number of WXY structures on multiple degrees. Furthermore, it includes wave-C ending diagonal along with a couple of triangle structures. Perhaps the structure has too many variables that a single impulse could easily void the overall labeling. However there is one obvious fact, that this a massive correction started way back in August 2011.

If you look closely at the X and Y waves of the Grand-supersycle degree (orange, circled,) the Y wave is in fact a smaller, inverted version of the preceding X wave.

Given the wave analysis, and the overall pattern of the structure, next massive impulse must be bearish. If the labeling is accurate, USDCHF is on the verge of a huge bearish impulse, just as the USDCAD.

Disclaimer: These are not trade calls, and I urge you to do your own wave analysis or any other form of analysis for that matter. Forecasts and predictions in this post are for educational purposes only. Although, wave analysis is a powerful tool, it is highly objective. Even highly sophisticated ellioticians use it for long term perspective and not as a standalone strategy to engage in trades. This is only my opinion of the discussed instruments and they are solely based on wave analysis. Hence it completely disregards the macro economic and fundamental aspects that affect the underlying currencies. The market may find its own path regardless of what you anticipate or what your wave analysis forecast.

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